Description
This is document describes about strategy report by ranbaxy.
STRATEGIC MANAGEMENT
Ranbaxy Laboratories Limited Temporal Evolution and Critical Assessment of Competitive Strategies
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Table of Contents
1. Introduction ........................................................................................................................... 1 2. History of the Indian Pharmaceutical Industry...................................................................... 2 2.1. Indian Pharmaceutical Sector - History .......................................................................... 2 2.2. Pre - Indian Patent Act, 1970.......................................................................................... 2 2.3. Indian Patent Act 1970 ................................................................................................... 2 2.4. Impact of Globalization .................................................................................................. 3 2.5. Scenario Pre-TRIPS ......................................................................................................... 3 2.6. Scenario Post-TRIPS (Patents Amendment Act (2005)) ................................................. 3 2.7. Mergers and Acquisitions ............................................................................................... 4 2.8. Porters Five Force Analysis ............................................................................................. 4 3. Temporal Evolution of the Company and its Strategy .......................................................... 5 4. Critical Assessment of the past Strategies ............................................................................ 8 4.1. Generic Drug Manufacturing .......................................................................................... 9 4.2. Timely Response to Market fluctuations...................................................................... 10 4.3. R&D as a source of sustained competitive advantage ................................................. 10
4.4. Development of Novel Drug Delivery System (NDDS) ................................................. 11 4.5. Project Crusoe .............................................................................................................. 12 4.6. Acquisitions .................................................................................................................. 13 4.7. Strategic Alliances......................................................................................................... 15 5. Current State of Affairs........................................................................................................ 16 5.1. Daiichi Sankyo acquires Ranbaxy ................................................................................. 16 5.2. R&D and Licensing Strategy.......................................................................................... 16 5.3. New product Development .......................................................................................... 16 5.4. International Opportunities ......................................................................................... 17 5.5. Vision and Future Strategy ........................................................................................... 17 6. Exhibits ................................................................................................................................ 18 7. References ........................................................................................................................... 23
1. Introduction Vision “To achieve significant business in proprietary prescription products by 2012 with a strong presence in developed markets. To be amongst the Top 5 global generic players and aims at achieving global sales of US $5 billion by 2012” Incorporated in 1961 and offered a public listing in 1973, Ranbaxy is one of India’s largest pharmaceutical companies. It is an integrated international pharmaceutical company focused on research, offering generic medicines. The partnership between Ranbaxy and Daiichi Sankyo has created a hybrid business model, with new drug research & development and extensive reach globally. Operates in 49 countries, with manufacturing facilities in 11 countries and serves customers in over 125 countries.[1] The company has broadly two businesses pharmaceuticals and others. Pharmaceuticals include manufacture and trading of formulations, APIs and intermediate, generics, drug discovery and consumer health care products. Others include rendering of financial services. Strong export business complements its domestic business.
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2. History of the Indian Pharmaceutical Industry The Indian pharmaceutical market was valued at $7,743 million in 2008, growing at 4.0% over 2007 and is estimated to grow at a higher rate than the global pharmaceutical market. India is the world’s 4th largest producer of pharmaceuticals by volume, accounting for around 8% of global production, in value production accounts for around 1.5% of the world. India is today recognized as one of the leading global players in pharmaceuticals. India exports to Europe, North America and Asia with Europe holding highest share of over 23% of overall exports. The Indian pharmaceutical industry directly employs around 500,000 people, with around 270 large R&D based pharmaceutical companies in India, including multinationals, government-owned and private companies. The Indian market has around 5,600 smaller licensed generics manufacturers. Most small firms do not have their own production facilities, but operate using the spare capacity of other drug manufacturers. The pharmaceutical industry in India meets around 70% of the domestic demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and injectibles. (Refer to Exhibit 1 – Size of Pharmaceutical Industry in individual countries) 2.1. Indian Pharmaceutical Sector - History The first Indian pharmaceutical company, Bengal Chemicals and Pharmaceutical Works, which still exists today as one of 5 government-owned drug manufacturers, appeared in Calcutta in 1930. 2.2. Pre - Indian Patent Act, 1970 [2] (Before 1970) At the time of independence, the total drug production in India was around Rs. 10 crores. The MNCs with the help of the colonial Patent and Designs Act, 1911 exploited the drug market of India by importing drugs from their countries. Between 1947 and 1957, 99% of the 1704 drugs and pharmaceutical patents in India were held by foreign MNCs. Drug prices in India were amongst the highest in the world. In 1954, the first public sector drug company Hindustan Antibiotic Ltd. (HAL) was established with help from WHO and UNICEF. The Indian Drugs and Pharmaceutical Limited (IDPL) were established in 1961 with help from the Soviet Union. 2.3. Indian Patent Act 1970 [2] (1970 – 1990) The Patent Bill was first introduced in Parliament in 1967, but came into force only in 1972. The government encouraged growth of drug manufacturing by Indian
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companies in the early 1960s, and the Patents Act, 1970, enabled the industry to explore opportunities in the generic market. This patent act removed composition patents from food and drugs, and retained process patents, which were shortened to a period of five to seven years. The lack of patent protection made the Indian market undesirable to the multinational companies that had dominated the market, and while they streamed out, Indian companies started to take their places. They carved a niche in both the Indian and world markets with their expertise in reverseengineering new processes for manufacturing generic drugs at low costs. During 25 years from 1975-1995, the Indian pharmaceutical industry recorded a growth from 15-18% with self-sufficiency in manufacture of medicines and exporter of bulk drugs/active ingredients.[2] 2.4. Impact of Globalization [2] (1990 - 1994) With the onset of globalization, the public sector drug companies (IDPL, HAL, BCPL, BI, SSPL) were faced with serious problems. Attempts were made to either privatize or close them for want of proper financial assistance from the government. The public sector drug companies that supplied raw materials to the small scale sector companies were facing difficulties in procuring raw materials. Reduction of the customs duties on foreign imports made Indian drugs unviable compared to the foreign goods in the Indian market. Factories like Hindustan Ciba Geigy, Boehringer Mannheim, Boots, Park Davis, Unichem etc. closed down, offered VRS to their workers and sold their factory premises at a premium price. India became dependent on foreign supply for generic drugs. Apart from these, Pfizer, Glaxo etc. cut their work force investing crores of rupees for VRS. 2.5. Scenario Pre-TRIPS [2] (1975 - 1994) The Patent act of 1970 enabled India to copy foreign patented drugs without paying a license fee. Moreover the DPCO, 1970 put a cap on the maximum price that could be charged and ensured that the life-saving drugs are available at reasonable prices. Under a regulatory system focusing on process patents and being in the grip of a rigid price control framework; the Indian pharmaceutical industry emerged from an import dependent industry in the 1950s to a worldwide recognized low cost producer of high quality pharmaceutical products with an annual export turnover of more than $ 1.5 billion. 2.6. Scenario Post-TRIPS (Patents Amendment Act (2005)) [3] (Post 1994) TRIPS agreement signed in Morocco in April 1994 set down minimum standards for IP regulation. Compliance with TRIPS mandated all the WTO member countries to
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amend their national legislations and bring it in conformity with its provisions. The most important amendment was the introduction of pharmaceutical product patents. The act was not applicable to drugs which were in the market prior to 1995. Drugs produced between 1995 and 2005 were to continue production, in return of a fixed royalty payment to the patent holder. The drugs which are now being manufactured and patented in India require compulsory licenses granted by the government on grounds such as non availability, high prices, public interest etc. The Indian formulations segment ever since the Patent (2 nd Amendment) Act, 2002 has grown at a CAGR of 13.44% from 2002-2007. In 2002, over 20,000 registered drug manufacturers in India sold $9 billion worth of formulations and bulk drugs. Eighty five percent of these formulations were sold in India while over 60% of the bulk drugs were exported, mostly to the United States and Russia. (Refer Exhibit 1 - for the graph for patents approved by ANDA (Abbreviated New Drug Approval) & Exhibit 2 – patents approved by ANDA split-up) 2.7. Mergers and Acquisitions [2] Mergers and acquisitions have now become a common phenomenon in the pharmaceutical industry. Through the process of M&A, MNCs are gradually perpetuating their grip on the Indian industry by creating monopolistic companies having worldwide control and domination. Indian companies have also adopted the same path, in the absence of which people might have to pay the demanded price in the seller’s market. 2.8. Porters Five Force Analysis
(Refer Exhibit 5)
Industry Competition: High The Indian pharmaceutical market is highly competitive and fragmented with the top 10 players accounting for 36.1% of the total R &H sales in 2008. There are about 250 large units and about 8000 Small Scale Units (SSIs), which form the core of the pharmaceutical industry in India (including 5 Central Public Sector Units). [4] The concentration ratio for the industry is very low. More than 20,000 registered units and have increased in the last two decades. The leading 250 pharmaceutical companies control 70% of the market with market leader holding nearly 7% of the market share.[4] Bargaining power of Buyers: Low In the pharmaceutical industry the buyer is influenced by the doctors, who suggest or recommend the medicines. The buyers are scattered and thus do not have much collective influence on the price of the product. The concentration among the buyers
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is lesser than that of the industry; hence the price sensitivity towards products is low. Prices are regulated by the Government through National Pharmaceuticals Pricing Authority (NPPA). Power of Suppliers: Low The pharmaceuticals industry depends on several chemicals. These chemicals are largely similar to commodity products. Chemical industry in turn is very competitive and fragmented. The suppliers thus have very low bargaining powers and the pharmaceuticals company can easily shift suppliers without incurring much losses. To overcome this, many Indian firms are looking at forward integration in the value chain and assume the role of a pharmaceutical company. Barriers to Entry: Low Pharmaceutical industry is very easily accessible industry for SSIs and entrepreneurs in India. At the same time, this industry offers economies of scale and a low capital requirement. The WTO-TRIPS compliance in 1995 has created a favorable environment for MNCs with blockbuster or patented drugs to enter the Indian market. The market for generics drugs is very huge and market share is projected to grow 50% by 2010 [5] Threat of Substitutes: Low The pharmaceutical industry does not have any close substitutes and perceived to be a continuous and thriving market. The advances made in the field of biotechnology can contribute to the future attributed threat to the synthetic pharmaceutical industry. The currently fragmented industry is moving towards consolidation, leaving smaller players acquired or shut shop in the coming years. The market will contain few large players, representing a cartel. The barriers to entry will increase, as post patent regime there will be new proprietary drugs introduced, which will make the imitation or similar scale of production possible. 3. Temporal Evolution of the Company and its Strategy [6] & [7] In the year 1962, two employees of a Japanese pharmaceutical firm operating in Punjab, India – Ranjit Singh and Gurbax Singh came together to form a company to market pharmaceutical products in the local market of Amritsar in Punjab. The company was named Ranbaxy by mixing the two names of the founders. The company accrued its additional capital by borrowing a loan from a moneylender Bhai Mohan Singh. In 1966, as the debt mounted up, the brothers had no option than to sell the company to Bhai Mohan Singh. The next year, his eldest son Dr. Parvinder
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Singh, a PhD graduate in Chemistry from the University of Michigan joins Ranbaxy. Dr. Parvinder Singh is considered to have brought about dynamic changes during his tenure in the company – all the while the company which had been marketing pharmaceutical products in the local market in Punjab becomes a world leader in production of pharmaceutical products and also a research based international company. On the way to build the company, Dr. Parvinder Singh decides to manufacture generic drugs and in 1969, it launches Calmpose, a Valium generic. This becomes the company’s first huge success and it expanded quickly. This made Ranbaxy to open a new manufacturing plant in Mohali in the year 1973. Sooner a new legislation was passed by the Government of India which ended patent protection for the pharmaceutical companies. This came as a boon for other major players as well as budding players like Ranbaxy to manufacture low cost versions of already existing drugs. Moreover Ranbaxy had the cost advantage of manufacturing drugs at very low cost compared to its competitors. In the very same year, the company went public in order to accrue more capital and expand its operations. In 1977, Ranbaxy took a giant leap to broaden its market by open its first facility outside the country. Through a joint venture, the company opened a production facility in Nigeria meant to manufacture generic drugs for the international market. In another decade, Ranbaxy became India’s leading antibiotic and antibacterial drug manufacturer, thanks to the new dosage plant that was opened in Dewas in the year 1983. Just a year back Parvinder Singh was promoted as the Managing Director of the company who then devised the new strategy to become a full-fledged pharmaceutical company. APIs (Active Pharmaceutical Ingredients) are considered as the building blocks of a pharmaceutical industry. Knowing that India is fast emerging in the production of API, Dr. Parvinder Singh built an API plant in 1987 in Toansa, Punjab mainly for catering to the demand outside the country. The next year, Ranbaxy got Food and Drugs Administration approval which permitted them to enter into US market. In the later years, one could note that over three-fourths of the revenue made by the company comes from the US market alone. Bhai Mohan Singh still remained as the head of the company. Ranbaxy’s one major milestone was the company’s entry into a joint venture with Eli Lilly [1] which was then the world’s largest drugs marketer, in the year 1992 to form Eli Lilly Ranbaxy Limited (ERL). This joint venture gave Ranbaxy to sell Eli Lilly’s branded drugs in Indian market and at the same time gave Eli Lilly to sell Ranbaxy’s products in the US market. ERL was primarily focusing on four key areas which were cancer, cardiovascular disease, diabetes and infectious disease. This joint venture
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was in effect for next 18 years after which Ranbaxy decides to withdraw the alliance by making disinvestment to unlock funds from ERL’s equity [8]. At the onset of 1993, the company embarked upon a journey to develop its drugs “in-house”. Parvinder Singh had by then become the head of the company. The company changed its corporate mission to “To become a research based international pharmaceutical company”. The company did prove itself committed to the corporate mission it had devised. One of the pioneering decisions during the 1990s was the decision to set up shop in China.[9] In the year 1993, Ranbaxy’s strategy to expand into Chinese market led to a joint venture with Guangzhou Qiaoguang Pharmaceutical Co. Ltd. and HK New Chemic Ltd. to form Ranbaxy Guangzhou China Ltd. This alliance was well encouraged by both the Governments since this was the first strategic alliance between any two companies in the two countries. Through this joint venture, Ranbaxy could manufacture and market pharmaceutical products in China. The overall market size is around $ 19 billion and they showed their presence in AntiInfective and Cardiovascular therapeutic segments. Ranbaxy’s equity stake amounted to 78.67 % in the company (which later increased to 88% in 2003).[10] This move formed part of the company's strategy to make alliances for R&D to speed up research into new drugs. This was followed up by establishing subsidiaries in London (England) and Rayleigh (North Carolina). In 1995, the company increased its presence in the US market with a crucial takeover of Ohm Laboratories Inc., Ranbaxy’s first manufacturing plant in the US market. They constructed a new stateof-the-art manufacturing wing approved by the FDA in the premises of Ohm Labs Inc. This takeover enabled the company to market its generic products under its own brand name in the US, providing a major boost to the brand equity of the company in that market. The company also established its presence in the growing generics market of the UK with the acquisition of a company situated in the Republic of Ireland, Rima Pharmaceuticals Ltd. In the period of 1995-96, the company entered into US market once again with the purchase of Ohm Laboratories. This gave them the chance to set up a manufacturing plant for the first time in US. Moreover, they could sell their product under their own name in the US market. This strategic move took place just a couple of years prior to their disinvestment in ERL. In 1999, clinical trials for the company’s New Chemical Entity (NCE) commenced [1]. In the very same year, the company suffered one of its biggest blows with the demise of Dr. Parvinder Singh. Dr. Brar, a long time aide of Dr. Singh took over the company leadership with the family outsider, Dr. Brian Tempest getting the company president role. Change of management didn’t hamper
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Ranbaxy’s chances of continuing Dr. Singh’s expansion strategy. Dr. D. S. Brar, the MD and CEO of the company had envisaged that Ranbaxy’s strategy would be governed by its US strategy, which was going to be its biggest market in the years to come. Their international expansion continued on a sturdy note with expansion in Latin America’s largest pharmaceutical market, Brazil in 2000. This was followed by the acquisition of Bayer’s genetics business, Basics in Germany [11]. 2001 saw it setting up a new manufacturing facility in Vietnam, in congruence with Dr. Singh’s expansion strategies. It also became the fastest growing firm in the US with sales amounting in excess of USD 100 million in the same year. In 2002, the company took a critical decision by acquiring Aventis SA in France. Further in 2003, the company entered into a crucial alliance with GlaxoSmithKline (GSK) for drug discovery and development. It was agreed in the alliance that GSK would handle the later stage development processes for Ranbaxy created molecules. This agreement proved successful in the long term for both Ranbaxy and GSK. Ranbaxy was undergoing a change from a generic company to a specialty pharmaceutical company with an aim of transforming itself into a research based organization. All these big ticket alliances and acquisitions allowed the company’s sales to reach the USD 1 billion mark, making the company one of the top 100 pharmaceutical companies in the world. It could also boast itself as one of the top 10 generic drug companies in the world. With the announcement of the intention to enforce international drug patents in India in 2005, the transition of the company to a research based product developer seemed very crucial. The company has successfully ventured into foreign markets including Canada, Spain, Romania, and Germany. Establishing a joint venture with Nippon Chemiphar in Japan in the year 2005, the Company launches Vogseal for diabetes which is the first product of the joint venture. International growth remained central to Ranbaxy’s strategy as it tried to counter increasing competition in the 21 st century. In this regard it also started increasing its R&D spending with an aim of increasing revenue from in-house innovations to more than 40% of its overall revenues. (Refer Exhibit 6) 4. Critical Assessment of the past Strategies The most important strategic moves made by Ranbaxy which resulted in its growth and expansion and its critical evaluation are explained below:
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4.1. Generic Drug Manufacturing Ranbaxy’s vision is to become the fifth largest generic drug manufacturing company in the world. Focusing on production of generic drugs by Ranbaxy played an important role in their global expansion. When a drug is marketed by a pharmaceutical company, it is usually under a patent which allows only that particular company to sell it. So usually it will be sold at a premium price. So generic drug manufactures will start producing and marketing these drugs at a very low price once the patent is expired if there is any. These drugs will be sold at price which is affordable for the consumers especially in developing countries. How Ranbaxy used it as a strategy for its global expansion Ranbaxy’s main strategy was to wait for the drugs’ patent to expire and then flood the world market with its generic versions. This strategy, to a large extent, exploited Ranbaxy’s main competitive strengths like: ? Ranbaxy’s major strength is its advancement in technology. They started their research programs during the late 1970s.[12] They leveraged on this strength to form strategic alliance with various industry leaders in different countries. Through these strategic alliances they were able to manufacture generic drugs at low cost in India and sell these drugs to other countries through their alliances. Ranbaxy also exploited its industry opportunity to a great extent. ? During the period of 2003- 2004 the generic drugs grew at a much faster rate compared to the pharmaceutical market.[13] Ranbaxy aggressively followed the market trend and penetrated various new markets through strategic alliances. ? India’s low cost of production and innovation allowed it to sell at competitive prices across various countries. ? Ranbaxy also exploited the governments’ policies in various countries which promoted the introduction of generic drugs to reduce the overall healthcare cost and make it affordable to everyone. Ranbaxy during its initial days cannot afford to enter new markets as the cost incurred for producing a new drug through R&D is very high. So it was a very wise decision from Ranbaxy to enter the foreign markets through the production of generic drugs through strategic alliances. So this strategy enabled Ranbaxy to minimize its weakness. Customers were greatly benefitted by the introduction of generic drugs because of its low cost. VRIO framework for this strategy (Refer Exhibit 7)
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Ranbaxy was able to exploit the external opportunity as mentioned above through this strategy, which resulted in Ranbaxy venturing into various new markets and becoming the tenth largest firm in the world in producing generic drugs. This strategy is not rare as other companies can also venture into generic drug distribution in new markets through strategic alliances but the skilled labor which Ranbaxy enjoys along with base in R&D is a rare resource for Ranbaxy. This strategy can be imitated by other Indian players as Ranbaxy’s competitor Dr. Reddy’s also have a global presence of more than 100 countries. But Ranbaxy will always enjoy the first mover advantage (unique historical condition) in generic drug manufacturing business and distributing it worldwide through strategic alliances. Finally Ranbaxy exploited this strategy by venturing into many countries USA, UK, South Africa, Japan etc and becoming a leading player there. 4.2. Timely Response to Market fluctuations Ranbaxy’s success in international market can be attributed to its response to market fluctuations. An example of Ranbaxy’s right response to market fluctuation is given in the previous section about its venture into global market through generic drugs selling. When generic drug market growth was at its peak, along with relaxing government rules in various countries which promoted generic drugs, Ranbaxy acted quickly to strategic alliance with various leading players of different countries. Another example which highlights Ranbaxy’s timely response to market fluctuation is its diversification into Europe and Japan during 2005. 78% of Ranbaxy’s revenue was from US market during that time period. But in 2005 due to intense competition from branded drugs in US market, Ranbaxy’s US sales fell by 22% where as the net profit fell by 62% [9]. So, Ranbaxy ventured intensively into new markets during this time. They entered into Canada, Romania, South Africa, Japan in the time period 2005-2006 though strategic alliances and acquisitions. These market movements helped them to come back on track and register impressive growth rate. 4.3. R&D as a source of sustained competitive advantage Ranbaxy viewed R&D as a source of maintaining sustained competitive advantage. Even though Ranbaxy is known for its proficiency in manufacturing and distributing generic drugs globally, Ranbaxy gave supreme importance to R&D in its overall growth cycle. Ranbaxy started with R&D during late 70s. Ranbaxy established Ranbaxy Research Foundation during 1985. By 1994, Ranbaxy started a fully functional Research centre at Gurgaon. Ranbaxy’s innovation and investments in R&D played as an important source of competitive strength. It helped Ranbaxy to have superior technological skills which helped in them to form strategic alliances with various international players in pharmaceutical industry. This helped them in gaining global presence through the selling of generic drugs developed in India
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globally. Now Ranbaxy is focusing on Novel Drug Delivery system where Ranbaxy will be selling new drugs or out license its formula to other companies for royalty. Ranbaxy is now focusing on achieving sustained competitive advantage by exploiting its developed R&D facilities. VRIO framework for this strategy Focusing on R&D from early stages of its growth period had given a clear cut advantage to Ranbaxy over its competitors which there by added value for the firm. Ranbaxy started its R&D research from late 70s. By 1994, Ranbaxy had a fully operational research centre at Gurgaon. These unique historic conditions made the expertise in R&D a rare asset for Ranbaxy compared to its competitors which is difficult to imitate. Since Ranbaxy concentrated on R&D from the late 70s, it was possible for them to do it without much investment. Now if a new firm wants to be on par with Ranbaxy on technical expertise it would be difficult for them if they are not invested in R&D before. Companies like Dr. Reddy’s laboratories also enjoy superior technical expertise as they were also focusing on R&D from the start. The competitive advantage is exploited by Ranbaxy in expansion and forming strategic alliance with industry leaders in various countries. 4.4. Development of Novel Drug Delivery System (NDDS) Strength: ? Exogenous innovation through Strong R&D capabilities and resources for both drug discovery and development (pool of 1200 scientists) ? Huge distribution network in India Opportunity: ? Foreign companies wanted to enter Indian market for sale of their drugs ? Amendments to India’s patent legislation in 2005 have facilitated the integration of India into global pharmaceutical industry. Weakness: poor or no distribution network in foreign countries Ranbaxy’s R&D capabilities and resources, and distribution network in India are valuable as they assisted a lot to company expand its business competing with other global firms. These can be considered rare also as only one or two companies have comparable resources and distribution network in India. However, these can be imitated by other competitors but they give temporary competitive advantage to Ranbaxy. Company exploited its strengths by developing Novel Drug Delivery System (NDDS) technology.
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Ranbaxy introduced a new system called Novel Drug Delivery System, which had to focus on enhancing the overall therapeutic and commercial value of existing formulations.[1] The value could be increased by improving performance or curtailing adverse effects of prevailing drugs. This would add to value for patient or customer by improving his convenience and compliance. Company utilized its highly skilled manpower in R&D to exploit the opportunity of refining the existing products. Another objective of forming NDDS was to in-license the foreign drugs in Indian market and out-license its own newly developed drugs under NDDS to foreign companies. Since, Ranbaxy is India’s largest pharmaceutical company and has a well diverse distribution network in India; it is a rational choice for any foreign company to enter into an agreement with Ranbaxy for the drugs’ distribution. It is strengthened by the fact that Ranbaxy entered into an in-licensing agreement with Ethypharm S.A., France in May, 2006 for marketing and distribution of ‘Tramadol’ in India under the brand name ‘Trambax’.[14] This strategy worked in adding value to Ranbaxy by providing it opportunity to leverage on its prevailing distribution network and brand value. This helped company increase its revenue by opening door to a new business, which is quite sustainable also owing to company’s strengths. Similarly, it was quite evident for Ranbaxy to out-license its New Drug Applications (NDA) to a multinational pharmaceutical company to access to foreign market. Since, Ranbaxy didn’t have adequate distribution facilities in other countries; it is prudent to give rights to other pharmaceutical companies to develop its formulation and earn royalty on it. Company enjoyed its first significant international success using the NDDS technology, when a multinational company was given license for its Ciprofloxacin formulation on a worldwide basis in September 1999.[1] This strategy made worldwide availability of Ranbaxy’s generic drugs to customers, allowing them to access cheaper drugs of same quality. Company also got opportunities to learn from other companies’ resources and skills, which was a help to company to enhance its own capabilities. Access to foreign markets increased company’s visibility as well as revenue. 4.5. Project Crusoe If cost cutting helps a company gain competitive advantage, non-competitive cost may make it difficult for a company to survive in market. Ranbaxy didn’t let this situation occur by planning and implementing a well designed strategy in 2002. It initiated a project ‘Crusoe’, which stands for Creatively Releasing, Unleashing Substantial Operating Efficiencies, to employ cost cutting measures in 12 to 16 various functional areas like raw material sourcing, formulations manufacturing,
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marketing, distribution, R&D, packaging, freight, ads and promotions, rent-legalinsurance expense, power and fuel. Company designed the entire project to be executed in nine phases, with each phase incorporating four projects over a period of three months. Each phase targeted specific functional areas and a team was formed of 20-25 employees, drawn from various functions, for each phase. Company chose the employees as young as aged 21 years and as old as aged 50 years. This was in-line with company’s objective to take advantage of new ideas from young employees as well as experience of veterans. All the team members were believed to be working as internal consultants and made responsible to benchmark, ponder, question, suggest and implement better system. For example, Phase II focused on cost elements of high volume bulk drugs, rationalizing packaging, streamlining distribution, reduction of transport cost and e-sourcing. Cost efficiency in purchasing of high volume drugs was achieved through global material sourcing i.e. sourcing from low cost countries and introduction of new sources for key intermediates and APIs. This helped in optimizing costs, and minimizing risk on a consistent basis. This project was a big success and helped Ranbaxy save Rs 100 Crore by way of operational efficiencies in various functional areas.[15] This cost saving eventually helped company pass on this benefit to customers. Analysis of processes in all the functions helped company identify the areas, which could be improved such as servicing to customers. It fortified the belief in strength of company’s human resource in its continuous pursuit for innovation by means of generating ideas consistently. 4.6. Acquisitions One of the major strategies used by Ranbaxy has been acquisitions of firms for leveraging competencies, brands, manufacturing assets and sales force. Ranbaxy’s distinct competitive advantages gave the company an edge over others ? Ranbaxy’s strength of aggressiveness and spirit of competition in the Indian market which it carried to other markets as well ? Manufacturing base with a strong backward integration from lab to market ? Cost competitiveness and high quality of its R&D with focus on reducing cost and increasing efficiency ? Its low cost strategy supported the manufacturing of branded generics and was complemented by new drug delivery systems, line extensions and improved dose regimes.
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? Its ability to produce compounds whose know-how was known only to a few competitors world-wide provided competitive advantage, Ranbaxy deterred the entry of new entrants. The company made 8 acquisitions in 2006 alone – 4 in Europe, 2 in India, 1 in US and 1 in South Africa. Ranbaxy did not hold high stakes in the acquired company but it was an issue of opportunity of strategic fit, economic value and sustainability. Rather than buying the whole company, Ranbaxy buys stakes of four to five companies and use the resource allocation amongst five companies in five different therapeutic areas. By this way Ranbaxy worked with more people as partners and significantly strengthened its product basket in various markets, emerging markets and developed markets. The acquisitions helped the company in the following ways: ? To acquire more market share in the fast growing international generics markets and acquire technology in brands to move up the value chain. ? To enter new market segments. ? To increase export of drugs. ? To derive economies of scale by using its sales force for extending the diversity of its markets and to achieve pricing power. ? To improve its competitiveness by sourcing bulk drugs through internal procurement and increase its presence in many markets. ? To enter into specialty and niche therapeutic areas such as bio-generics, oncology, penems, limuses, peptides, and others, which offer high growth potential, sustainable earnings and healthy margins. 2006 – Ranbaxy acquired Ethimed, a generic drug manufacturer in Belgium [16] ? The move will allow Ranbaxy to anticipate local market dynamics and capitalize on the changing business landscape, in the Benelux countries. ? Ethimed offers Ranbaxy a ready and robust distribution network to exploit new product opportunities in the future. It also provides the company with a strong base from where operations can be managed and expanded in the Benelux countries. 2006- Acquisition of Terapia, Romania ? Facilitated to unleash new opportunities in Romania and CIS market which are high growth markets. ? It will provide Terapia with additional products to launch in the domestic market at very cost competitive levels, thereby lowering costs and delivering value to both consumers and the domestic healthcare budget.
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? Strong distribution network including the largest and the most powerful generic sales force in the Romanian market 4.7. Strategic Alliances Another major strategy of Ranbaxy is the use of strategic alliances for improving competitive advantage Ranbaxy forged strategic alliances with different partners to achieve the following ? To enter new therapeutic segments ? To develop new drugs and research in a collaborative manner ? To enter untapped geographies ? To leverage global marketing reach 2006-Alliance with Zenotech Laboratories Limited, India [17] ? Facilitated Ranbaxy’s entry into the new oncology (treatment of tumors like cancer) segment in the key markets like Europe, Africa, CIS and Latin America. ? In return Zenotech leveraged Ranbaxy’s global marketing reach. 2008- Alliance with Orchid Chemicals ? Ranbaxy leveraged on its front end strength across markets like US, Europe, Latin America and CIS/Russia to distribute Orchid’s niche portfolio of products. By doing this Ranbaxy gained access to the profitable injectible antibiotics segment. 2003- Alliance with GlaxoSmithKline ? The agreement presents a unique opportunity to demonstrate the India-centric advantages of high quality research and development to deliver value at the cutting edge. ? Facilitated building a strong pipeline for clinical Proof of Concept trials via external R&D collaborations. Some of other Ranbaxy’s alliances: ? Sourcing intermediates (alliance with Vorin) ? Bulk drug manufacturing (alliance with Dr. Reddy’s Laboratories) ? Marketing (alliances with Hoechst Marion, Eli Lilly, Dainippon) ? Diversification (alliance with Dade, Terumo, Specialty labs) ? Drug discovery (alliances with University of Chemical Technology, Mumbai and Indian Institute of Chemical Technology, Hyderabad) ? Clinical trials (alliance with Merck) VRIO framework for acquisitions
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Acquisitions and joint ventures are the main strategies which played an important role in Ranbaxy’s growth. Ranbaxy formed strategic alliances with many leading firms across various countries as per the facts given above. This has added value and credibility to Ranbaxy. This strategy cannot be termed as rare since other major Indian players can also form alliances with foreign players. But Ranbaxy have the first mover advantage and has formed alliance with the major players in most part of the world. 5. Current State of Affairs Ranbaxy, one of the largest pharmaceutical companies in India had an eventful year and half with some very important Decision. Whether it would be a successful testing for drugs or launching of new protein supplement or as big as acquisition of the firm by a Japanese pharmaceutical major the firm has seen it all in recent time. 5.1. Daiichi Sankyo acquires Ranbaxy Daiichi Sankyo completed the deal with Indian pharmaceutical major with a whooping sum of $ 4.15 billion. Daiichi now has a 63.92% stake in Ranbaxy. The landmark deal will give Ranbaxy state of the art technology of its Japanese ally. On the other hand Daiichi will gain with low cost operation of Ranbaxy.[18] 5.2. R&D and Licensing Strategy Ranbaxy which has been known as a “Generic Drug Manufacturer” tested success in the branded drugs when it initiated the phase 1 clinical trials of drugs for treating respiratory inflammation. This drug development is done in collaboration with British drug maker GlaxoSmithKline. The tests will be conducted in both India and Europe. This is a major milestone for Ranbaxy in the branded drug market. The collaboration between the two companies started in year 2003 for Drug Discovery and Development. It involves development of drugs for treating infections, respiratory diseases and Cancer. Ranbaxy is set to receive $100 million in milestone payment and double digit royalties if GlaxoSmithKline decides to launch the product.[19] The strategy followed by Ranbaxy and other Indian Pharmaceutical companies is to develop new molecules and then license them to one of its partners from the developed countries (in this case GlaxoSmithKline). 5.3. New product Development Ranbaxy entered the protein supplement with launch of Revitalite. The demand for high quality protein supplements which is expected to grow at 6% a year has resulted in this introduction. The product is cheaper than its competing brands and
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hence cost leadership for Ranbaxy. Also with its Brand name and strong distribution network gives Ranbaxy competitive advantage over other firms.[20] 5.4. International Opportunities It is believed that the Indian Generic Drug manufactures (like Ranbaxy) will greatly suffer because of Trade Related Intellectual Property Rights (TRIPS) as they are not allowed to produce and market new drugs which were patented after January 1995. But this loss could be compensated by the export to the developed countries for drugs whose patents have recently expired. The graph shown in Exhibit 7 and Exhibit 8 show the estimated patent expiry in both US and Europe for drugs and hence major opportunity for Ranbaxy in these markets.[21] 5.5. Vision and Future Strategy The company aspires to be one of the top 5 global generic players with a strong presence in developed countries. It aims to achieve global sales of US $5 Billion by 2012.
Short Term Future: 1. The collaborative deal with GlaxoSmithKline is a major achievement as the firm moves from being just a generic drug manufacturer to the branded drugs. We believe company will continue with such alliances to develop branded drugs. 2. Ranbaxy is also looking for opportunities in unconventional products with its launch of protein supplement. We see the company to continue with such high growth potential drugs with competitive prices. Long Term Future: 1. Daiichi acquisition is a major step in the long term interest of the firm as it brings the two culturally different firms together. In future we could see a different approach from Ranbaxy with more stress on R&D and technology. 2. With Ranbaxy interest in the International market we expect them to focus on its generic drug business through organic and inorganic growth in the key markets. It will continue to look for opportunities to acquire both in India as well as developed countries to leverage its competencies, brands, manufacturing assets and sales force.
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6. Exhibits Exhibit 1 Figure 1 – Pharmaceutical Industry size in Individual Countries (Source: Indian Pharmaceutical Industry-World's Destination, KRC Equity Research)
Exhibit 2 Figure 2 – Patents applied to and approved by ANDA for each Pharmaceutical Company (Source: Indian Pharmaceutical Industry-World's Destination, KRC Equity Research)
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Exhibit 3 Figure 3 – ANDAs approved – Entire market and Indian share (Source: Indian Pharmaceutical Industry-World's Destination, KRC Equity Research)
Exhibit 4 Table 1 – Top Ten Global Acquisitions by Pharmaceutical Companies (Source: Indian Pharmaceutical Industry-World's Destination, KRC Equity Research) Value US $ mn Target Company 88771.1 78775.1 65656.7 64479.7 60704 45913 42460.4 31774.3 27733.7 26772 Warner-Lambert Co SmithKline Beecham PLC Aventis SA Wyeth United Pharmacia Corp Schering-Plough Crop Genentech Inc Astra AB Alcon Inc Pharmacia & Upjohn Inc Target Nation United States United Kingdom France United States United States United States United States Sweden United States United States Acquirer Name Pfizer Glaxo Wellcome PLC SanofiSynthelabo SA Pfizer Pfizer Merck & Co Inc Roche Holding AG Zeneca Group PLC Novartis AG Monsanto Co Acquirer Nation United States United Kingdom France United States United States United States United States United Kingdom Switzerland United States
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Date 4-Nov-99 17-Nov-99 26-Jan-04 26-Jan-09 15-Jul-02 9-Mar-09 21-Jul-08 9-Dec-98 7-Apr-08 20-Dec-99
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Exhibit 5 Figure 4 – Porter Analysis of Pharmaceutical Industry Power of Suppliers High
Barriers to entry Low
Industry Competition High
Threat of substitutes Low
Power of Buyers Low
Exhibit 6 Figure 5 – Ranbaxy’s Growth form 1995 – 2004 (Source: The challenges of going global – N. Chandra Mohan)
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Exhibit 7 Table 2 - Ranbaxy’s VRIO Analysis Ranbaxy’s Resources Valuable? Rare? Difficult to imitate? Yes Yes No Exploited by Organization? Yes
R&D skill set? ? ? ? ? ? ? Continuous Innovation Cost reduction
Alliances & acquisitionsPresence in niche market Access to foreign markets Acquired new competencies
Yes
Yes
Yes
Yes
Brand ValueFormed alliances pharma majors with foreign
Yes
Yes
Yes
Yes
Acquired rights to sell others’ drugs under its brand name Large distribution network in IndiaYes ? ? ? Entered into in-license agreement with drug manufacturers Easy availability of its generic drugs Increased revenue Exhibit 8
Yes
No
Yes
Figure 6 – Estimated Patent Expiry in US [4]
30 25 20 20 US $ Billion 15 10 5 0 2007 2008 2009E 2010E 2011E 2012E 20 20 28 28 27
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Exhibit 9 Figure 7 – Estimated Patent Expiry in Europe [4]
6 5 5 4 4 US $ Billion 3 3 2 1 0 2007 2008 2009E 2010E 2011E 2012E 3 4 4
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7. References
[1] [2] [3]
http://www.ranbaxy.com Globalisation and the Indian Pharmaceutical Industry, D.P. Dubey Impact of TRIPS on Indian Pharmaceutical Industry, Gopakumar G Nair, Journal of Intellectual Property Rights, Vol 13, September 2008, pp 432-441 Indian Pharmaceuticals Industry- Richard Gerster KR Choksey, “Indian Pharmaceutical Industry- World’s Destination”, July 31, 2009http://www.thehindubusinessline.com/2000/12/29/stories/14295101.htmhttp://www.thehindu.com/thehindu/2001/07/06/stories/06060006.htmhttp://www.fundinguniverse.com/company-histories/Ranbaxy-Laboratories-LtdCompany-History.html The challenges of going global – N. Chandra Mohan www.referenceforbusiness.com Corporate development – Chemical Business, October 1999 Major Players of Indian Pharmaceutical industry ,Cygnus, 2008 Ranbaxy MarketBuster , Aditya Humadhttp://www.bio-medicine.org/medicin...DDSAnalgesic-Molecule-From-Ethypharm-10552-1/http://www.financialexpress.com/news/cost-cutting-may-fetch-rs-100cr-forranbaxy/58063/http://www.outlookseries.com/news/Science/926.htmhttp://www.prdomain.com/companies/R/RanbaxyLaboratories/newsreleases/200 631029818.htm Chemical Week, November 17, 2008http://www.drugstorenews.com, February 9, 2009 Business Line, Kasturi & Sons Ltd, August 13, 2009 KRChoksey wealth enhancement solutions, India Equity Research Pharmaceutical, Aurbindo Pharma Limited
[4] [5] [6] [7] [8]
[9]
[10] [11] [12] [13] [14]
[15]
[16] [17]
[18] [19] [20] [21]
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doc_171062200.docx
This is document describes about strategy report by ranbaxy.
STRATEGIC MANAGEMENT
Ranbaxy Laboratories Limited Temporal Evolution and Critical Assessment of Competitive Strategies
?
Table of Contents
1. Introduction ........................................................................................................................... 1 2. History of the Indian Pharmaceutical Industry...................................................................... 2 2.1. Indian Pharmaceutical Sector - History .......................................................................... 2 2.2. Pre - Indian Patent Act, 1970.......................................................................................... 2 2.3. Indian Patent Act 1970 ................................................................................................... 2 2.4. Impact of Globalization .................................................................................................. 3 2.5. Scenario Pre-TRIPS ......................................................................................................... 3 2.6. Scenario Post-TRIPS (Patents Amendment Act (2005)) ................................................. 3 2.7. Mergers and Acquisitions ............................................................................................... 4 2.8. Porters Five Force Analysis ............................................................................................. 4 3. Temporal Evolution of the Company and its Strategy .......................................................... 5 4. Critical Assessment of the past Strategies ............................................................................ 8 4.1. Generic Drug Manufacturing .......................................................................................... 9 4.2. Timely Response to Market fluctuations...................................................................... 10 4.3. R&D as a source of sustained competitive advantage ................................................. 10
4.4. Development of Novel Drug Delivery System (NDDS) ................................................. 11 4.5. Project Crusoe .............................................................................................................. 12 4.6. Acquisitions .................................................................................................................. 13 4.7. Strategic Alliances......................................................................................................... 15 5. Current State of Affairs........................................................................................................ 16 5.1. Daiichi Sankyo acquires Ranbaxy ................................................................................. 16 5.2. R&D and Licensing Strategy.......................................................................................... 16 5.3. New product Development .......................................................................................... 16 5.4. International Opportunities ......................................................................................... 17 5.5. Vision and Future Strategy ........................................................................................... 17 6. Exhibits ................................................................................................................................ 18 7. References ........................................................................................................................... 23
1. Introduction Vision “To achieve significant business in proprietary prescription products by 2012 with a strong presence in developed markets. To be amongst the Top 5 global generic players and aims at achieving global sales of US $5 billion by 2012” Incorporated in 1961 and offered a public listing in 1973, Ranbaxy is one of India’s largest pharmaceutical companies. It is an integrated international pharmaceutical company focused on research, offering generic medicines. The partnership between Ranbaxy and Daiichi Sankyo has created a hybrid business model, with new drug research & development and extensive reach globally. Operates in 49 countries, with manufacturing facilities in 11 countries and serves customers in over 125 countries.[1] The company has broadly two businesses pharmaceuticals and others. Pharmaceuticals include manufacture and trading of formulations, APIs and intermediate, generics, drug discovery and consumer health care products. Others include rendering of financial services. Strong export business complements its domestic business.
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2. History of the Indian Pharmaceutical Industry The Indian pharmaceutical market was valued at $7,743 million in 2008, growing at 4.0% over 2007 and is estimated to grow at a higher rate than the global pharmaceutical market. India is the world’s 4th largest producer of pharmaceuticals by volume, accounting for around 8% of global production, in value production accounts for around 1.5% of the world. India is today recognized as one of the leading global players in pharmaceuticals. India exports to Europe, North America and Asia with Europe holding highest share of over 23% of overall exports. The Indian pharmaceutical industry directly employs around 500,000 people, with around 270 large R&D based pharmaceutical companies in India, including multinationals, government-owned and private companies. The Indian market has around 5,600 smaller licensed generics manufacturers. Most small firms do not have their own production facilities, but operate using the spare capacity of other drug manufacturers. The pharmaceutical industry in India meets around 70% of the domestic demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and injectibles. (Refer to Exhibit 1 – Size of Pharmaceutical Industry in individual countries) 2.1. Indian Pharmaceutical Sector - History The first Indian pharmaceutical company, Bengal Chemicals and Pharmaceutical Works, which still exists today as one of 5 government-owned drug manufacturers, appeared in Calcutta in 1930. 2.2. Pre - Indian Patent Act, 1970 [2] (Before 1970) At the time of independence, the total drug production in India was around Rs. 10 crores. The MNCs with the help of the colonial Patent and Designs Act, 1911 exploited the drug market of India by importing drugs from their countries. Between 1947 and 1957, 99% of the 1704 drugs and pharmaceutical patents in India were held by foreign MNCs. Drug prices in India were amongst the highest in the world. In 1954, the first public sector drug company Hindustan Antibiotic Ltd. (HAL) was established with help from WHO and UNICEF. The Indian Drugs and Pharmaceutical Limited (IDPL) were established in 1961 with help from the Soviet Union. 2.3. Indian Patent Act 1970 [2] (1970 – 1990) The Patent Bill was first introduced in Parliament in 1967, but came into force only in 1972. The government encouraged growth of drug manufacturing by Indian
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companies in the early 1960s, and the Patents Act, 1970, enabled the industry to explore opportunities in the generic market. This patent act removed composition patents from food and drugs, and retained process patents, which were shortened to a period of five to seven years. The lack of patent protection made the Indian market undesirable to the multinational companies that had dominated the market, and while they streamed out, Indian companies started to take their places. They carved a niche in both the Indian and world markets with their expertise in reverseengineering new processes for manufacturing generic drugs at low costs. During 25 years from 1975-1995, the Indian pharmaceutical industry recorded a growth from 15-18% with self-sufficiency in manufacture of medicines and exporter of bulk drugs/active ingredients.[2] 2.4. Impact of Globalization [2] (1990 - 1994) With the onset of globalization, the public sector drug companies (IDPL, HAL, BCPL, BI, SSPL) were faced with serious problems. Attempts were made to either privatize or close them for want of proper financial assistance from the government. The public sector drug companies that supplied raw materials to the small scale sector companies were facing difficulties in procuring raw materials. Reduction of the customs duties on foreign imports made Indian drugs unviable compared to the foreign goods in the Indian market. Factories like Hindustan Ciba Geigy, Boehringer Mannheim, Boots, Park Davis, Unichem etc. closed down, offered VRS to their workers and sold their factory premises at a premium price. India became dependent on foreign supply for generic drugs. Apart from these, Pfizer, Glaxo etc. cut their work force investing crores of rupees for VRS. 2.5. Scenario Pre-TRIPS [2] (1975 - 1994) The Patent act of 1970 enabled India to copy foreign patented drugs without paying a license fee. Moreover the DPCO, 1970 put a cap on the maximum price that could be charged and ensured that the life-saving drugs are available at reasonable prices. Under a regulatory system focusing on process patents and being in the grip of a rigid price control framework; the Indian pharmaceutical industry emerged from an import dependent industry in the 1950s to a worldwide recognized low cost producer of high quality pharmaceutical products with an annual export turnover of more than $ 1.5 billion. 2.6. Scenario Post-TRIPS (Patents Amendment Act (2005)) [3] (Post 1994) TRIPS agreement signed in Morocco in April 1994 set down minimum standards for IP regulation. Compliance with TRIPS mandated all the WTO member countries to
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amend their national legislations and bring it in conformity with its provisions. The most important amendment was the introduction of pharmaceutical product patents. The act was not applicable to drugs which were in the market prior to 1995. Drugs produced between 1995 and 2005 were to continue production, in return of a fixed royalty payment to the patent holder. The drugs which are now being manufactured and patented in India require compulsory licenses granted by the government on grounds such as non availability, high prices, public interest etc. The Indian formulations segment ever since the Patent (2 nd Amendment) Act, 2002 has grown at a CAGR of 13.44% from 2002-2007. In 2002, over 20,000 registered drug manufacturers in India sold $9 billion worth of formulations and bulk drugs. Eighty five percent of these formulations were sold in India while over 60% of the bulk drugs were exported, mostly to the United States and Russia. (Refer Exhibit 1 - for the graph for patents approved by ANDA (Abbreviated New Drug Approval) & Exhibit 2 – patents approved by ANDA split-up) 2.7. Mergers and Acquisitions [2] Mergers and acquisitions have now become a common phenomenon in the pharmaceutical industry. Through the process of M&A, MNCs are gradually perpetuating their grip on the Indian industry by creating monopolistic companies having worldwide control and domination. Indian companies have also adopted the same path, in the absence of which people might have to pay the demanded price in the seller’s market. 2.8. Porters Five Force Analysis
(Refer Exhibit 5)
Industry Competition: High The Indian pharmaceutical market is highly competitive and fragmented with the top 10 players accounting for 36.1% of the total R &H sales in 2008. There are about 250 large units and about 8000 Small Scale Units (SSIs), which form the core of the pharmaceutical industry in India (including 5 Central Public Sector Units). [4] The concentration ratio for the industry is very low. More than 20,000 registered units and have increased in the last two decades. The leading 250 pharmaceutical companies control 70% of the market with market leader holding nearly 7% of the market share.[4] Bargaining power of Buyers: Low In the pharmaceutical industry the buyer is influenced by the doctors, who suggest or recommend the medicines. The buyers are scattered and thus do not have much collective influence on the price of the product. The concentration among the buyers
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is lesser than that of the industry; hence the price sensitivity towards products is low. Prices are regulated by the Government through National Pharmaceuticals Pricing Authority (NPPA). Power of Suppliers: Low The pharmaceuticals industry depends on several chemicals. These chemicals are largely similar to commodity products. Chemical industry in turn is very competitive and fragmented. The suppliers thus have very low bargaining powers and the pharmaceuticals company can easily shift suppliers without incurring much losses. To overcome this, many Indian firms are looking at forward integration in the value chain and assume the role of a pharmaceutical company. Barriers to Entry: Low Pharmaceutical industry is very easily accessible industry for SSIs and entrepreneurs in India. At the same time, this industry offers economies of scale and a low capital requirement. The WTO-TRIPS compliance in 1995 has created a favorable environment for MNCs with blockbuster or patented drugs to enter the Indian market. The market for generics drugs is very huge and market share is projected to grow 50% by 2010 [5] Threat of Substitutes: Low The pharmaceutical industry does not have any close substitutes and perceived to be a continuous and thriving market. The advances made in the field of biotechnology can contribute to the future attributed threat to the synthetic pharmaceutical industry. The currently fragmented industry is moving towards consolidation, leaving smaller players acquired or shut shop in the coming years. The market will contain few large players, representing a cartel. The barriers to entry will increase, as post patent regime there will be new proprietary drugs introduced, which will make the imitation or similar scale of production possible. 3. Temporal Evolution of the Company and its Strategy [6] & [7] In the year 1962, two employees of a Japanese pharmaceutical firm operating in Punjab, India – Ranjit Singh and Gurbax Singh came together to form a company to market pharmaceutical products in the local market of Amritsar in Punjab. The company was named Ranbaxy by mixing the two names of the founders. The company accrued its additional capital by borrowing a loan from a moneylender Bhai Mohan Singh. In 1966, as the debt mounted up, the brothers had no option than to sell the company to Bhai Mohan Singh. The next year, his eldest son Dr. Parvinder
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Singh, a PhD graduate in Chemistry from the University of Michigan joins Ranbaxy. Dr. Parvinder Singh is considered to have brought about dynamic changes during his tenure in the company – all the while the company which had been marketing pharmaceutical products in the local market in Punjab becomes a world leader in production of pharmaceutical products and also a research based international company. On the way to build the company, Dr. Parvinder Singh decides to manufacture generic drugs and in 1969, it launches Calmpose, a Valium generic. This becomes the company’s first huge success and it expanded quickly. This made Ranbaxy to open a new manufacturing plant in Mohali in the year 1973. Sooner a new legislation was passed by the Government of India which ended patent protection for the pharmaceutical companies. This came as a boon for other major players as well as budding players like Ranbaxy to manufacture low cost versions of already existing drugs. Moreover Ranbaxy had the cost advantage of manufacturing drugs at very low cost compared to its competitors. In the very same year, the company went public in order to accrue more capital and expand its operations. In 1977, Ranbaxy took a giant leap to broaden its market by open its first facility outside the country. Through a joint venture, the company opened a production facility in Nigeria meant to manufacture generic drugs for the international market. In another decade, Ranbaxy became India’s leading antibiotic and antibacterial drug manufacturer, thanks to the new dosage plant that was opened in Dewas in the year 1983. Just a year back Parvinder Singh was promoted as the Managing Director of the company who then devised the new strategy to become a full-fledged pharmaceutical company. APIs (Active Pharmaceutical Ingredients) are considered as the building blocks of a pharmaceutical industry. Knowing that India is fast emerging in the production of API, Dr. Parvinder Singh built an API plant in 1987 in Toansa, Punjab mainly for catering to the demand outside the country. The next year, Ranbaxy got Food and Drugs Administration approval which permitted them to enter into US market. In the later years, one could note that over three-fourths of the revenue made by the company comes from the US market alone. Bhai Mohan Singh still remained as the head of the company. Ranbaxy’s one major milestone was the company’s entry into a joint venture with Eli Lilly [1] which was then the world’s largest drugs marketer, in the year 1992 to form Eli Lilly Ranbaxy Limited (ERL). This joint venture gave Ranbaxy to sell Eli Lilly’s branded drugs in Indian market and at the same time gave Eli Lilly to sell Ranbaxy’s products in the US market. ERL was primarily focusing on four key areas which were cancer, cardiovascular disease, diabetes and infectious disease. This joint venture
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was in effect for next 18 years after which Ranbaxy decides to withdraw the alliance by making disinvestment to unlock funds from ERL’s equity [8]. At the onset of 1993, the company embarked upon a journey to develop its drugs “in-house”. Parvinder Singh had by then become the head of the company. The company changed its corporate mission to “To become a research based international pharmaceutical company”. The company did prove itself committed to the corporate mission it had devised. One of the pioneering decisions during the 1990s was the decision to set up shop in China.[9] In the year 1993, Ranbaxy’s strategy to expand into Chinese market led to a joint venture with Guangzhou Qiaoguang Pharmaceutical Co. Ltd. and HK New Chemic Ltd. to form Ranbaxy Guangzhou China Ltd. This alliance was well encouraged by both the Governments since this was the first strategic alliance between any two companies in the two countries. Through this joint venture, Ranbaxy could manufacture and market pharmaceutical products in China. The overall market size is around $ 19 billion and they showed their presence in AntiInfective and Cardiovascular therapeutic segments. Ranbaxy’s equity stake amounted to 78.67 % in the company (which later increased to 88% in 2003).[10] This move formed part of the company's strategy to make alliances for R&D to speed up research into new drugs. This was followed up by establishing subsidiaries in London (England) and Rayleigh (North Carolina). In 1995, the company increased its presence in the US market with a crucial takeover of Ohm Laboratories Inc., Ranbaxy’s first manufacturing plant in the US market. They constructed a new stateof-the-art manufacturing wing approved by the FDA in the premises of Ohm Labs Inc. This takeover enabled the company to market its generic products under its own brand name in the US, providing a major boost to the brand equity of the company in that market. The company also established its presence in the growing generics market of the UK with the acquisition of a company situated in the Republic of Ireland, Rima Pharmaceuticals Ltd. In the period of 1995-96, the company entered into US market once again with the purchase of Ohm Laboratories. This gave them the chance to set up a manufacturing plant for the first time in US. Moreover, they could sell their product under their own name in the US market. This strategic move took place just a couple of years prior to their disinvestment in ERL. In 1999, clinical trials for the company’s New Chemical Entity (NCE) commenced [1]. In the very same year, the company suffered one of its biggest blows with the demise of Dr. Parvinder Singh. Dr. Brar, a long time aide of Dr. Singh took over the company leadership with the family outsider, Dr. Brian Tempest getting the company president role. Change of management didn’t hamper
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Ranbaxy’s chances of continuing Dr. Singh’s expansion strategy. Dr. D. S. Brar, the MD and CEO of the company had envisaged that Ranbaxy’s strategy would be governed by its US strategy, which was going to be its biggest market in the years to come. Their international expansion continued on a sturdy note with expansion in Latin America’s largest pharmaceutical market, Brazil in 2000. This was followed by the acquisition of Bayer’s genetics business, Basics in Germany [11]. 2001 saw it setting up a new manufacturing facility in Vietnam, in congruence with Dr. Singh’s expansion strategies. It also became the fastest growing firm in the US with sales amounting in excess of USD 100 million in the same year. In 2002, the company took a critical decision by acquiring Aventis SA in France. Further in 2003, the company entered into a crucial alliance with GlaxoSmithKline (GSK) for drug discovery and development. It was agreed in the alliance that GSK would handle the later stage development processes for Ranbaxy created molecules. This agreement proved successful in the long term for both Ranbaxy and GSK. Ranbaxy was undergoing a change from a generic company to a specialty pharmaceutical company with an aim of transforming itself into a research based organization. All these big ticket alliances and acquisitions allowed the company’s sales to reach the USD 1 billion mark, making the company one of the top 100 pharmaceutical companies in the world. It could also boast itself as one of the top 10 generic drug companies in the world. With the announcement of the intention to enforce international drug patents in India in 2005, the transition of the company to a research based product developer seemed very crucial. The company has successfully ventured into foreign markets including Canada, Spain, Romania, and Germany. Establishing a joint venture with Nippon Chemiphar in Japan in the year 2005, the Company launches Vogseal for diabetes which is the first product of the joint venture. International growth remained central to Ranbaxy’s strategy as it tried to counter increasing competition in the 21 st century. In this regard it also started increasing its R&D spending with an aim of increasing revenue from in-house innovations to more than 40% of its overall revenues. (Refer Exhibit 6) 4. Critical Assessment of the past Strategies The most important strategic moves made by Ranbaxy which resulted in its growth and expansion and its critical evaluation are explained below:
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4.1. Generic Drug Manufacturing Ranbaxy’s vision is to become the fifth largest generic drug manufacturing company in the world. Focusing on production of generic drugs by Ranbaxy played an important role in their global expansion. When a drug is marketed by a pharmaceutical company, it is usually under a patent which allows only that particular company to sell it. So usually it will be sold at a premium price. So generic drug manufactures will start producing and marketing these drugs at a very low price once the patent is expired if there is any. These drugs will be sold at price which is affordable for the consumers especially in developing countries. How Ranbaxy used it as a strategy for its global expansion Ranbaxy’s main strategy was to wait for the drugs’ patent to expire and then flood the world market with its generic versions. This strategy, to a large extent, exploited Ranbaxy’s main competitive strengths like: ? Ranbaxy’s major strength is its advancement in technology. They started their research programs during the late 1970s.[12] They leveraged on this strength to form strategic alliance with various industry leaders in different countries. Through these strategic alliances they were able to manufacture generic drugs at low cost in India and sell these drugs to other countries through their alliances. Ranbaxy also exploited its industry opportunity to a great extent. ? During the period of 2003- 2004 the generic drugs grew at a much faster rate compared to the pharmaceutical market.[13] Ranbaxy aggressively followed the market trend and penetrated various new markets through strategic alliances. ? India’s low cost of production and innovation allowed it to sell at competitive prices across various countries. ? Ranbaxy also exploited the governments’ policies in various countries which promoted the introduction of generic drugs to reduce the overall healthcare cost and make it affordable to everyone. Ranbaxy during its initial days cannot afford to enter new markets as the cost incurred for producing a new drug through R&D is very high. So it was a very wise decision from Ranbaxy to enter the foreign markets through the production of generic drugs through strategic alliances. So this strategy enabled Ranbaxy to minimize its weakness. Customers were greatly benefitted by the introduction of generic drugs because of its low cost. VRIO framework for this strategy (Refer Exhibit 7)
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Ranbaxy was able to exploit the external opportunity as mentioned above through this strategy, which resulted in Ranbaxy venturing into various new markets and becoming the tenth largest firm in the world in producing generic drugs. This strategy is not rare as other companies can also venture into generic drug distribution in new markets through strategic alliances but the skilled labor which Ranbaxy enjoys along with base in R&D is a rare resource for Ranbaxy. This strategy can be imitated by other Indian players as Ranbaxy’s competitor Dr. Reddy’s also have a global presence of more than 100 countries. But Ranbaxy will always enjoy the first mover advantage (unique historical condition) in generic drug manufacturing business and distributing it worldwide through strategic alliances. Finally Ranbaxy exploited this strategy by venturing into many countries USA, UK, South Africa, Japan etc and becoming a leading player there. 4.2. Timely Response to Market fluctuations Ranbaxy’s success in international market can be attributed to its response to market fluctuations. An example of Ranbaxy’s right response to market fluctuation is given in the previous section about its venture into global market through generic drugs selling. When generic drug market growth was at its peak, along with relaxing government rules in various countries which promoted generic drugs, Ranbaxy acted quickly to strategic alliance with various leading players of different countries. Another example which highlights Ranbaxy’s timely response to market fluctuation is its diversification into Europe and Japan during 2005. 78% of Ranbaxy’s revenue was from US market during that time period. But in 2005 due to intense competition from branded drugs in US market, Ranbaxy’s US sales fell by 22% where as the net profit fell by 62% [9]. So, Ranbaxy ventured intensively into new markets during this time. They entered into Canada, Romania, South Africa, Japan in the time period 2005-2006 though strategic alliances and acquisitions. These market movements helped them to come back on track and register impressive growth rate. 4.3. R&D as a source of sustained competitive advantage Ranbaxy viewed R&D as a source of maintaining sustained competitive advantage. Even though Ranbaxy is known for its proficiency in manufacturing and distributing generic drugs globally, Ranbaxy gave supreme importance to R&D in its overall growth cycle. Ranbaxy started with R&D during late 70s. Ranbaxy established Ranbaxy Research Foundation during 1985. By 1994, Ranbaxy started a fully functional Research centre at Gurgaon. Ranbaxy’s innovation and investments in R&D played as an important source of competitive strength. It helped Ranbaxy to have superior technological skills which helped in them to form strategic alliances with various international players in pharmaceutical industry. This helped them in gaining global presence through the selling of generic drugs developed in India
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globally. Now Ranbaxy is focusing on Novel Drug Delivery system where Ranbaxy will be selling new drugs or out license its formula to other companies for royalty. Ranbaxy is now focusing on achieving sustained competitive advantage by exploiting its developed R&D facilities. VRIO framework for this strategy Focusing on R&D from early stages of its growth period had given a clear cut advantage to Ranbaxy over its competitors which there by added value for the firm. Ranbaxy started its R&D research from late 70s. By 1994, Ranbaxy had a fully operational research centre at Gurgaon. These unique historic conditions made the expertise in R&D a rare asset for Ranbaxy compared to its competitors which is difficult to imitate. Since Ranbaxy concentrated on R&D from the late 70s, it was possible for them to do it without much investment. Now if a new firm wants to be on par with Ranbaxy on technical expertise it would be difficult for them if they are not invested in R&D before. Companies like Dr. Reddy’s laboratories also enjoy superior technical expertise as they were also focusing on R&D from the start. The competitive advantage is exploited by Ranbaxy in expansion and forming strategic alliance with industry leaders in various countries. 4.4. Development of Novel Drug Delivery System (NDDS) Strength: ? Exogenous innovation through Strong R&D capabilities and resources for both drug discovery and development (pool of 1200 scientists) ? Huge distribution network in India Opportunity: ? Foreign companies wanted to enter Indian market for sale of their drugs ? Amendments to India’s patent legislation in 2005 have facilitated the integration of India into global pharmaceutical industry. Weakness: poor or no distribution network in foreign countries Ranbaxy’s R&D capabilities and resources, and distribution network in India are valuable as they assisted a lot to company expand its business competing with other global firms. These can be considered rare also as only one or two companies have comparable resources and distribution network in India. However, these can be imitated by other competitors but they give temporary competitive advantage to Ranbaxy. Company exploited its strengths by developing Novel Drug Delivery System (NDDS) technology.
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Ranbaxy introduced a new system called Novel Drug Delivery System, which had to focus on enhancing the overall therapeutic and commercial value of existing formulations.[1] The value could be increased by improving performance or curtailing adverse effects of prevailing drugs. This would add to value for patient or customer by improving his convenience and compliance. Company utilized its highly skilled manpower in R&D to exploit the opportunity of refining the existing products. Another objective of forming NDDS was to in-license the foreign drugs in Indian market and out-license its own newly developed drugs under NDDS to foreign companies. Since, Ranbaxy is India’s largest pharmaceutical company and has a well diverse distribution network in India; it is a rational choice for any foreign company to enter into an agreement with Ranbaxy for the drugs’ distribution. It is strengthened by the fact that Ranbaxy entered into an in-licensing agreement with Ethypharm S.A., France in May, 2006 for marketing and distribution of ‘Tramadol’ in India under the brand name ‘Trambax’.[14] This strategy worked in adding value to Ranbaxy by providing it opportunity to leverage on its prevailing distribution network and brand value. This helped company increase its revenue by opening door to a new business, which is quite sustainable also owing to company’s strengths. Similarly, it was quite evident for Ranbaxy to out-license its New Drug Applications (NDA) to a multinational pharmaceutical company to access to foreign market. Since, Ranbaxy didn’t have adequate distribution facilities in other countries; it is prudent to give rights to other pharmaceutical companies to develop its formulation and earn royalty on it. Company enjoyed its first significant international success using the NDDS technology, when a multinational company was given license for its Ciprofloxacin formulation on a worldwide basis in September 1999.[1] This strategy made worldwide availability of Ranbaxy’s generic drugs to customers, allowing them to access cheaper drugs of same quality. Company also got opportunities to learn from other companies’ resources and skills, which was a help to company to enhance its own capabilities. Access to foreign markets increased company’s visibility as well as revenue. 4.5. Project Crusoe If cost cutting helps a company gain competitive advantage, non-competitive cost may make it difficult for a company to survive in market. Ranbaxy didn’t let this situation occur by planning and implementing a well designed strategy in 2002. It initiated a project ‘Crusoe’, which stands for Creatively Releasing, Unleashing Substantial Operating Efficiencies, to employ cost cutting measures in 12 to 16 various functional areas like raw material sourcing, formulations manufacturing,
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marketing, distribution, R&D, packaging, freight, ads and promotions, rent-legalinsurance expense, power and fuel. Company designed the entire project to be executed in nine phases, with each phase incorporating four projects over a period of three months. Each phase targeted specific functional areas and a team was formed of 20-25 employees, drawn from various functions, for each phase. Company chose the employees as young as aged 21 years and as old as aged 50 years. This was in-line with company’s objective to take advantage of new ideas from young employees as well as experience of veterans. All the team members were believed to be working as internal consultants and made responsible to benchmark, ponder, question, suggest and implement better system. For example, Phase II focused on cost elements of high volume bulk drugs, rationalizing packaging, streamlining distribution, reduction of transport cost and e-sourcing. Cost efficiency in purchasing of high volume drugs was achieved through global material sourcing i.e. sourcing from low cost countries and introduction of new sources for key intermediates and APIs. This helped in optimizing costs, and minimizing risk on a consistent basis. This project was a big success and helped Ranbaxy save Rs 100 Crore by way of operational efficiencies in various functional areas.[15] This cost saving eventually helped company pass on this benefit to customers. Analysis of processes in all the functions helped company identify the areas, which could be improved such as servicing to customers. It fortified the belief in strength of company’s human resource in its continuous pursuit for innovation by means of generating ideas consistently. 4.6. Acquisitions One of the major strategies used by Ranbaxy has been acquisitions of firms for leveraging competencies, brands, manufacturing assets and sales force. Ranbaxy’s distinct competitive advantages gave the company an edge over others ? Ranbaxy’s strength of aggressiveness and spirit of competition in the Indian market which it carried to other markets as well ? Manufacturing base with a strong backward integration from lab to market ? Cost competitiveness and high quality of its R&D with focus on reducing cost and increasing efficiency ? Its low cost strategy supported the manufacturing of branded generics and was complemented by new drug delivery systems, line extensions and improved dose regimes.
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? Its ability to produce compounds whose know-how was known only to a few competitors world-wide provided competitive advantage, Ranbaxy deterred the entry of new entrants. The company made 8 acquisitions in 2006 alone – 4 in Europe, 2 in India, 1 in US and 1 in South Africa. Ranbaxy did not hold high stakes in the acquired company but it was an issue of opportunity of strategic fit, economic value and sustainability. Rather than buying the whole company, Ranbaxy buys stakes of four to five companies and use the resource allocation amongst five companies in five different therapeutic areas. By this way Ranbaxy worked with more people as partners and significantly strengthened its product basket in various markets, emerging markets and developed markets. The acquisitions helped the company in the following ways: ? To acquire more market share in the fast growing international generics markets and acquire technology in brands to move up the value chain. ? To enter new market segments. ? To increase export of drugs. ? To derive economies of scale by using its sales force for extending the diversity of its markets and to achieve pricing power. ? To improve its competitiveness by sourcing bulk drugs through internal procurement and increase its presence in many markets. ? To enter into specialty and niche therapeutic areas such as bio-generics, oncology, penems, limuses, peptides, and others, which offer high growth potential, sustainable earnings and healthy margins. 2006 – Ranbaxy acquired Ethimed, a generic drug manufacturer in Belgium [16] ? The move will allow Ranbaxy to anticipate local market dynamics and capitalize on the changing business landscape, in the Benelux countries. ? Ethimed offers Ranbaxy a ready and robust distribution network to exploit new product opportunities in the future. It also provides the company with a strong base from where operations can be managed and expanded in the Benelux countries. 2006- Acquisition of Terapia, Romania ? Facilitated to unleash new opportunities in Romania and CIS market which are high growth markets. ? It will provide Terapia with additional products to launch in the domestic market at very cost competitive levels, thereby lowering costs and delivering value to both consumers and the domestic healthcare budget.
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? Strong distribution network including the largest and the most powerful generic sales force in the Romanian market 4.7. Strategic Alliances Another major strategy of Ranbaxy is the use of strategic alliances for improving competitive advantage Ranbaxy forged strategic alliances with different partners to achieve the following ? To enter new therapeutic segments ? To develop new drugs and research in a collaborative manner ? To enter untapped geographies ? To leverage global marketing reach 2006-Alliance with Zenotech Laboratories Limited, India [17] ? Facilitated Ranbaxy’s entry into the new oncology (treatment of tumors like cancer) segment in the key markets like Europe, Africa, CIS and Latin America. ? In return Zenotech leveraged Ranbaxy’s global marketing reach. 2008- Alliance with Orchid Chemicals ? Ranbaxy leveraged on its front end strength across markets like US, Europe, Latin America and CIS/Russia to distribute Orchid’s niche portfolio of products. By doing this Ranbaxy gained access to the profitable injectible antibiotics segment. 2003- Alliance with GlaxoSmithKline ? The agreement presents a unique opportunity to demonstrate the India-centric advantages of high quality research and development to deliver value at the cutting edge. ? Facilitated building a strong pipeline for clinical Proof of Concept trials via external R&D collaborations. Some of other Ranbaxy’s alliances: ? Sourcing intermediates (alliance with Vorin) ? Bulk drug manufacturing (alliance with Dr. Reddy’s Laboratories) ? Marketing (alliances with Hoechst Marion, Eli Lilly, Dainippon) ? Diversification (alliance with Dade, Terumo, Specialty labs) ? Drug discovery (alliances with University of Chemical Technology, Mumbai and Indian Institute of Chemical Technology, Hyderabad) ? Clinical trials (alliance with Merck) VRIO framework for acquisitions
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Acquisitions and joint ventures are the main strategies which played an important role in Ranbaxy’s growth. Ranbaxy formed strategic alliances with many leading firms across various countries as per the facts given above. This has added value and credibility to Ranbaxy. This strategy cannot be termed as rare since other major Indian players can also form alliances with foreign players. But Ranbaxy have the first mover advantage and has formed alliance with the major players in most part of the world. 5. Current State of Affairs Ranbaxy, one of the largest pharmaceutical companies in India had an eventful year and half with some very important Decision. Whether it would be a successful testing for drugs or launching of new protein supplement or as big as acquisition of the firm by a Japanese pharmaceutical major the firm has seen it all in recent time. 5.1. Daiichi Sankyo acquires Ranbaxy Daiichi Sankyo completed the deal with Indian pharmaceutical major with a whooping sum of $ 4.15 billion. Daiichi now has a 63.92% stake in Ranbaxy. The landmark deal will give Ranbaxy state of the art technology of its Japanese ally. On the other hand Daiichi will gain with low cost operation of Ranbaxy.[18] 5.2. R&D and Licensing Strategy Ranbaxy which has been known as a “Generic Drug Manufacturer” tested success in the branded drugs when it initiated the phase 1 clinical trials of drugs for treating respiratory inflammation. This drug development is done in collaboration with British drug maker GlaxoSmithKline. The tests will be conducted in both India and Europe. This is a major milestone for Ranbaxy in the branded drug market. The collaboration between the two companies started in year 2003 for Drug Discovery and Development. It involves development of drugs for treating infections, respiratory diseases and Cancer. Ranbaxy is set to receive $100 million in milestone payment and double digit royalties if GlaxoSmithKline decides to launch the product.[19] The strategy followed by Ranbaxy and other Indian Pharmaceutical companies is to develop new molecules and then license them to one of its partners from the developed countries (in this case GlaxoSmithKline). 5.3. New product Development Ranbaxy entered the protein supplement with launch of Revitalite. The demand for high quality protein supplements which is expected to grow at 6% a year has resulted in this introduction. The product is cheaper than its competing brands and
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hence cost leadership for Ranbaxy. Also with its Brand name and strong distribution network gives Ranbaxy competitive advantage over other firms.[20] 5.4. International Opportunities It is believed that the Indian Generic Drug manufactures (like Ranbaxy) will greatly suffer because of Trade Related Intellectual Property Rights (TRIPS) as they are not allowed to produce and market new drugs which were patented after January 1995. But this loss could be compensated by the export to the developed countries for drugs whose patents have recently expired. The graph shown in Exhibit 7 and Exhibit 8 show the estimated patent expiry in both US and Europe for drugs and hence major opportunity for Ranbaxy in these markets.[21] 5.5. Vision and Future Strategy The company aspires to be one of the top 5 global generic players with a strong presence in developed countries. It aims to achieve global sales of US $5 Billion by 2012.
Short Term Future: 1. The collaborative deal with GlaxoSmithKline is a major achievement as the firm moves from being just a generic drug manufacturer to the branded drugs. We believe company will continue with such alliances to develop branded drugs. 2. Ranbaxy is also looking for opportunities in unconventional products with its launch of protein supplement. We see the company to continue with such high growth potential drugs with competitive prices. Long Term Future: 1. Daiichi acquisition is a major step in the long term interest of the firm as it brings the two culturally different firms together. In future we could see a different approach from Ranbaxy with more stress on R&D and technology. 2. With Ranbaxy interest in the International market we expect them to focus on its generic drug business through organic and inorganic growth in the key markets. It will continue to look for opportunities to acquire both in India as well as developed countries to leverage its competencies, brands, manufacturing assets and sales force.
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6. Exhibits Exhibit 1 Figure 1 – Pharmaceutical Industry size in Individual Countries (Source: Indian Pharmaceutical Industry-World's Destination, KRC Equity Research)
Exhibit 2 Figure 2 – Patents applied to and approved by ANDA for each Pharmaceutical Company (Source: Indian Pharmaceutical Industry-World's Destination, KRC Equity Research)
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Exhibit 3 Figure 3 – ANDAs approved – Entire market and Indian share (Source: Indian Pharmaceutical Industry-World's Destination, KRC Equity Research)
Exhibit 4 Table 1 – Top Ten Global Acquisitions by Pharmaceutical Companies (Source: Indian Pharmaceutical Industry-World's Destination, KRC Equity Research) Value US $ mn Target Company 88771.1 78775.1 65656.7 64479.7 60704 45913 42460.4 31774.3 27733.7 26772 Warner-Lambert Co SmithKline Beecham PLC Aventis SA Wyeth United Pharmacia Corp Schering-Plough Crop Genentech Inc Astra AB Alcon Inc Pharmacia & Upjohn Inc Target Nation United States United Kingdom France United States United States United States United States Sweden United States United States Acquirer Name Pfizer Glaxo Wellcome PLC SanofiSynthelabo SA Pfizer Pfizer Merck & Co Inc Roche Holding AG Zeneca Group PLC Novartis AG Monsanto Co Acquirer Nation United States United Kingdom France United States United States United States United States United Kingdom Switzerland United States
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Date 4-Nov-99 17-Nov-99 26-Jan-04 26-Jan-09 15-Jul-02 9-Mar-09 21-Jul-08 9-Dec-98 7-Apr-08 20-Dec-99
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Exhibit 5 Figure 4 – Porter Analysis of Pharmaceutical Industry Power of Suppliers High
Barriers to entry Low
Industry Competition High
Threat of substitutes Low
Power of Buyers Low
Exhibit 6 Figure 5 – Ranbaxy’s Growth form 1995 – 2004 (Source: The challenges of going global – N. Chandra Mohan)
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Exhibit 7 Table 2 - Ranbaxy’s VRIO Analysis Ranbaxy’s Resources Valuable? Rare? Difficult to imitate? Yes Yes No Exploited by Organization? Yes
R&D skill set? ? ? ? ? ? ? Continuous Innovation Cost reduction
Alliances & acquisitionsPresence in niche market Access to foreign markets Acquired new competencies
Yes
Yes
Yes
Yes
Brand ValueFormed alliances pharma majors with foreign
Yes
Yes
Yes
Yes
Acquired rights to sell others’ drugs under its brand name Large distribution network in IndiaYes ? ? ? Entered into in-license agreement with drug manufacturers Easy availability of its generic drugs Increased revenue Exhibit 8
Yes
No
Yes
Figure 6 – Estimated Patent Expiry in US [4]
30 25 20 20 US $ Billion 15 10 5 0 2007 2008 2009E 2010E 2011E 2012E 20 20 28 28 27
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Exhibit 9 Figure 7 – Estimated Patent Expiry in Europe [4]
6 5 5 4 4 US $ Billion 3 3 2 1 0 2007 2008 2009E 2010E 2011E 2012E 3 4 4
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7. References
[1] [2] [3]
http://www.ranbaxy.com Globalisation and the Indian Pharmaceutical Industry, D.P. Dubey Impact of TRIPS on Indian Pharmaceutical Industry, Gopakumar G Nair, Journal of Intellectual Property Rights, Vol 13, September 2008, pp 432-441 Indian Pharmaceuticals Industry- Richard Gerster KR Choksey, “Indian Pharmaceutical Industry- World’s Destination”, July 31, 2009http://www.thehindubusinessline.com/2000/12/29/stories/14295101.htmhttp://www.thehindu.com/thehindu/2001/07/06/stories/06060006.htmhttp://www.fundinguniverse.com/company-histories/Ranbaxy-Laboratories-LtdCompany-History.html The challenges of going global – N. Chandra Mohan www.referenceforbusiness.com Corporate development – Chemical Business, October 1999 Major Players of Indian Pharmaceutical industry ,Cygnus, 2008 Ranbaxy MarketBuster , Aditya Humadhttp://www.bio-medicine.org/medicin...DDSAnalgesic-Molecule-From-Ethypharm-10552-1/http://www.financialexpress.com/news/cost-cutting-may-fetch-rs-100cr-forranbaxy/58063/http://www.outlookseries.com/news/Science/926.htmhttp://www.prdomain.com/companies/R/RanbaxyLaboratories/newsreleases/200 631029818.htm Chemical Week, November 17, 2008http://www.drugstorenews.com, February 9, 2009 Business Line, Kasturi & Sons Ltd, August 13, 2009 KRChoksey wealth enhancement solutions, India Equity Research Pharmaceutical, Aurbindo Pharma Limited
[4] [5] [6] [7] [8]
[9]
[10] [11] [12] [13] [14]
[15]
[16] [17]
[18] [19] [20] [21]
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